- The European Union raised its inflation forecast for the Eurozone this year from 1.1% to 1.4%
- The European Union lowered the official forecast of the national currencies of the EU for the first quarter of 2021 to 3.8%.
- On the other hand, Germany's economic growth is predicted to rise above three percent.
The European Union lowered the economic growth rate of the Eurozone this year to 3.8%, which was previously expected to rise 4.2%. Among them, the economy is expected to contract by 0.9% year-on-year in the first quarter. The EU pointed out that the current risk is still quite high.
The economic growth rate next year is expected to be 3.8%, they pointed out, which was previously expected to increase by 3%.
“As increasing numbers are vaccinated over the coming months, an easing of containment measures should allow for a strengthening rebound over the spring and summer,” said Paolo Gentiloni, the EU’s economics commissioner.
The European Union raised its inflation forecast for the Eurozone this year from 1.1% to 1.4%, and next year’s inflation forecast remains unchanged at 1.3%.
At the same time, the average price of London Brent crude oil this year is expected to be raised from $44.60 per barrel to $54.70. The average price for next year is expected to be raised from $46.40 per barrel to $52.40.
“Moreover, the strength of the rebound could surprise on the upside driven by a burst of post-crisis optimism that would unleash stronger pent-up demand and innovative investment projects, thanks to historically high household savings, low financing costs, and supportive policies.”
In the European Union, economic growth is one of its most important policy objectives, which is why the Union has made a commitment to a regular and timely release of the EU growth and economic forecast every month.
The European Union lowered the official forecast of the national currencies of the EU for the first quarter of 2021 to 3.8%. This was followed by a slight increase to 3.9% for the second quarter.
The official estimate for the period of 2021 shows an increase of over three percent, which is slightly below the national currency predictions.
The main factors behind the lower than expected growth is due to the Euro becoming stronger against the Dollar. The weaker Euro is causing export revenues of its national currencies to be less than forecast. It has also resulted in some member states having currency devalued more than the other countries.
It is estimated that the weakening of the Euro will result in about a 12-percent fall in the value of the EUR-USD. It is expected that exports will fall between six to seven percent, depending on the direction of the movement of the market.
Valdis Dombrovskis, executive vice-president at the commission, said a “strong European response” remained vital to tackling the broader impact of the crisis, including job losses, a weakened corporate sector, and rising inequalities. “We will still have a great deal to do to contain the wider socio-economic fallout.”
On the other hand, Germany’s economic growth is predicted to rise above three percent. The Euro is weak against the Dollar in the medium term, but it will recover in the long term as Germany’s export-based industries develop.
One of the reasons for this is the fact that the Eurozone is no longer a unified political entity. Twenty-seven nations comprise the euro area.
Each nation has a different style of economic management, different policies towards international trade, and different cultural values.
This means that there is an ongoing debate on how to solve the currency crisis that the euro area is facing. One possible solution is a common European currency.
The countries that wish to join the euro area have to agree on a common economic policy. In addition, the common currency will need to protect the country’s national economic interests. The political pressures are too great for the common currency, not to succeed in the next few years.
In the future, it is very likely that the EUR/USD will lose its strength against the GBP/USD. As long as the political will exists to maintain the peg of the pound, the EUR/USD will be subject to uncontrolled fluctuations. It could even end up strengthening against other currencies.
On the other hand, if the political decision is made to reintroduce the pound and the British economy starts to recover from the global recession, the EUR/USD will most probably become stronger.